Jurassic Park: Rise of the Health Insurers

By Kim Bellard, June 26, 2015

If you want to see dinosaurs fighting, stalking, and even mating, you don't need to go see Jurassic World.  Just pick up the business pages and see what is going on with the big health insurers, who seem intent on getting even bigger.

Whether anything actually comes of all the merger mania, or whether such mergers prove good for consumers, remains to be seen.

Everyone seems to be in play.  The Wall Street Journal reported that Anthem has made overtures to Cigna, while United is interested in Aetna, with Humana still attractive to Aetna and Cigna.  You can't make this stuff up. It would be ironic if Humana was one left standing in this game of musical chairs, but many feel their assets are too inviting to be left out. 

One conventional wisdom is that these kinds of mergers/acquisitions have to do with scale. Bigger means more lives to spread such costs over.  The other culprit often cited is a desire to gain more clout with providers,

The trouble is, no matter how big health plans get, if they face markets where there is, in essence, only one provider with which to negotiate, size doesn't really matter. Bigger isn't always better.

You can make dinosaurs bigger, but that doesn't make them more agile or better prepared to deal with new risks.  I'm wondering when we're going to see not bigger health insurers, but truly different models for them.

We've seen true integrated provider/health plan models like KaiserGroup Health Cooperative, or Geisinger for decades now, and they're generally successful in their core markets, but that model hasn't proved easily replicable. 

We've also seem health system building their own health plans, such as Intermountain HealthcareSentara, or UPMC.   We've even seen health plans buying/building their own health systems, such as UPMC's bitter rival Highmark Health.

If Anthem buys Cigna or United buys Aetna, it wouldn't be all that interesting, nor would it be novel.  Those are dinosaurs getting bigger but not evolving.  

If Humana and HCA got back together, that would be interesting.  That would be provider/payor integration writ large, and maybe produce something new. 

And if, say, CVS or Walgreens chose to merge with a health insurer, that would something even more unique.  I don't know how they'd change the health insurer, but it might be fun to find out.

Honestly, though, what I'd really love to see is a company from an entirely different sector, hopefully one with a strong consumer focus, buy into the health insurance business.  Maybe Humana should get back together with the Virgin Group, or perhaps Walmart would be interested in taking over a Medicaid managed care or Medicare Advantage plan.  Wouldn't you love to see Walmart take on the health care supply chain?  I bet they could squeeze better value out for its customers.

Jurassic World seems to be raking in the money despite being just another sequel about rogue dinosaurs.  Let's hope we see something with health insurers that isn't just another sequel as well.

This post is an abridged version of the posting in Kim Bellard’s blogsite. Click here to read the full posting


Some Things to Know and Ask in the Aftermath of the CVS/Target Deal

By Clive Riddle, June 19, 2015

Here’s some things to know in the aftermath of the announced CVS/Target deal . We can start with this list of deal points that the two companies provided in their press release announcing the acquisition and strategic partnership:

  • CVS Health will acquire Target’s pharmacy and clinic businesses for approximately $1.9 billion.
  • CVS Health will acquire Target’s more than 1,660 pharmacies across 47 states and operate them through a store-within-a-store format, branded as CVS/pharmacy.
  • A CVS/pharmacy will be included in all new Target stores that offer pharmacy services
  • Target’s nearly 80 clinic locations will be rebranded as MinuteClinic,
  • CVS Health will open up to 20 new clinics in Target stores within three years of the close of the transaction. The new clinics will be part of CVS/minuteclinic’s plan to operate 1,500 clinics by 2017
  • CVS Health and Target plan to develop five to 10 small, flexible format stores over a two-year period following the deal close, which will each be branded as TargetExpress and include a CVS/pharmacy

Two new videos posted in HealthShareTV help explain the deal in simpler terms:  CVS, Target Merger Might Boost Health Of Both Companies and CVS Health Taking Over Target's Pharmacy, Clinics for $1.9 Bn.

Two new healthsprocket each list five reasons behind the motivations for the deal:  Fortune Magazine: Five reasons Target's deal with CVS Health makes it leaner and meaner and USA Today: 5 reasons why Target sold pharmacy biz to CVS. The two lists differ some – but what they have in common mentions foot traffic and that Target wasn’t in a position to excel at pharmacy.

One way of framing the deal from Target’s perspective, is that it’s just a part of their larger picture to streamline and focus. For example, in April they announced finalization of closure of all Canadian Stores. The big picture was their $2 billion restructuring plan announced in February which has included rounds of corporate layoffs from March through this week, with the Minneapolis / St. Paul Business Journal reporting that the “Minneapolis-based retailer, Minnesota's fifth-largest employer, has now cut 2,360 jobs in the U.S., 17,600 in Canada and 350 in India this year.”

A key statistic to note, is that sources cite only 5% to 7% of Target customers use the store’s pharmacy services. Thus -the difference for the two companies is that Target customers come to purchase consumer goods, and some incrementally purchase prescription and health items as long as they’re going to be at Target; while CVS customers come to purchase prescription and health items, and some incrementally purchase consumer goods as long as they’re going to be at CVS.

Does this signal a trend for chain supermarkets, or other big box retailers such as Costco, that offer pharmacy services? If more retailers do shed or partner their pharmacy services , what are the implications for the retail clinic industry? 


Health Plan Member Portals

By Claire Thayer, June 18, 2015

During the months of May and June, MCOL and LexisNexis conducted an e-poll of healthcare professionals on their involvement and insights with health plan member portals.  Respondents were categorized as Health Plan, Integrated delivery Network, Third Party Administrator (TPA), Self-Insured Employer, and Other. Overall, two thirds of the respondents indicated that they currently have a health plan member portal in place, and 43% of those who currently don’t have a health plan member portal in place plan on establishing one within the next 12 months. 

MCOL’s infoGraphoid for this week highlights results from the MCOL / LexisNexis e-poll as well as Cigna’s experience with their CDHP customers’ use of health portals and a recent HIMSS Leadership survey on use of patient portals:

MCOL’s weekly infoGraphoid is a benefit for MCOL Basic members and released each Wednesday as part of the MCOL Daily Factoid e-newsletter distribution service – find out more here.


PwC and Milliman Examination of Medical Cost Trends

by Clive Riddle, June 10, 2015

PwC projects a medical cost trend for 2016 of 6.5%, netting down to 4.5% after benefit design changes. Milliman tells us that the 2015 actual trend was 6.3%, up from 5.4% in 2014.

PwC’s Health Research Institute this week released their tenth annual Behind the Numbers report, which includes a “projection for the coming year’s medical cost trend based on analysis of medical costs in the large employer insurance market. In compiling data for 2016, HRI interviewed industry executives, health policy experts and health plan actuaries whose companies cover more than 100 million employer based members.

Milliman released their fifteenth annual Milliman Medical Index report two weeks ago, which is “an actuarial analysis of the projected total cost of healthcare for a hypothetical family of four covered by an employer-sponsored preferred provider organization (PPO) plan. Unlike many other healthcare cost reports, the MMI measures the total cost of healthcare benefits, not just the employer’s share of the costs, and not just premiums. The MMI only includes healthcare costs. It does not include health plan administrative expenses or profit loads.”

With respect to 2015, Milliman found “the cost of healthcare for a typical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan is $24,671”, up from $23,215 in 2014. The 2015 family costs works out to $2,055 on a monthly basis.

Milliman emphasizes the importance of the role the Rx costs play in the mix. They note “prescription drug costs spiked significantly, growing by 13.6% from 2014 to 2015. Growth over the previous five years averaged 6.8%. The 2015 spike resulted from the introduction of new specialty drugs as well as price increases in both brand and generic name drugs, increases in use of compound medicines, and other causes. Since the MMI’s inception in 2001, prescription drugs have increased by 9.4% on average, exceeding the 7.7% average trend for all other services. Prescription drug costs now comprise 15.9% of total healthcare spending for our family of four, up from 13.2% in 2001.”

Milliman also highlights the role of cost-sharing, citing that the “total employee cost (payroll deductions plus out-of-pocket expenses) increased by approximately 43% from 2010 to 2015, while employer costs increased by 32%. Of the $24,671 in total healthcare costs for this typical family, $10,473 is paid by the family, $6,408 through payroll deductions, and $4,065 in out-of-pocket expenses incurred at point of care.”

PwC also keys on these two issues for 2016 as well, with drugs as an inflator, and cost-sharing as a deflator of the medical trend.  PwC spotlighted two inflators of the 2016 medical trend: (1) New specialty drugs entering the market in 2015 and 2016 will continue to push health spending growth upward; and (2) Major cyber-security breaches are forcing health companies to step up investments to guard personal health data, adding to the overall cost of delivering care.

PwC notes three factors that serve to "deflate" the 2016 medical cost trend: (1) The Affordable Care Act’s looming “Cadillac tax” on high-priced plans which is accelerating cost-shifting from employers to employees to reduce costs; (2) Greater adoption of “virtual care” technology that can be more efficient and convenient than traditional medical care; and (3) New health advisers helping to steer consumers to more efficient healthcare.

PwC also comments on the longer range medical trend perspective, citing four key cost growth factors H observed over the past decade:

  • The healthcare-spending trajectory has leveled off but is not declining;
  • Cost sharing slows consumer use of health services;
  • Curtailing inpatient care lowers costs; and
  • The ACA has had minimal direct effect on employer health costs.

Track 3 For Medicare ACOs

by Clive Riddle, June 5, 2015

CMS has just issued a 592 page MSSP ACO final rule resulting from their proposed rule issue in December, which received 275 stakeholder comments.

Here’s what CMS, in their own words, says the new final rule will accomplish:

  • Creates a new Track 3, based on some of the successful features of the Pioneer ACO Model, which includes higher rates of shared savings, the prospective assignment of beneficiaries, and the opportunity to use new care coordination tools;
  • Streamlines the data sharing between CMS and ACOs, helping ACOs more easily access data on their patients in a secure way for quality improvement and care coordination that can drive critical improvements in beneficiaries’ care;
  • Establishes a waiver of the 3-day stay Skilled Nursing Facility (SNF) rule for beneficiaries that are prospectively assigned to ACOs under Track 3; and
  • Refines the policies for resetting ACO benchmarks to help ensure that the program continues to provide strong incentives for ACOs to improve patient care and generate cost savings, and announces CMS’ intent to propose further improvements to the benchmarking methodology later this year. 

CMS notes that “over 400 ACOs are participating in the Medicare Shared Savings Program, serving over 7 million beneficiaries.” With respect to basing their new Track 3 on selected components of their Pioneer ACO model, they tout that Pioneer ACOs “generated over $384 million in savings to Medicare over its first two years – an average of approximately $300 per participating beneficiary per year – while continuing to deliver high-quality patient care.  The Pioneer ACO Model is the first that meets the tests to have its elements incorporated into other Medicare programs.” 

California Healthline reports that “the new track for ACOs will allow them to retain up to 75% of what they save but also be responsible for up to 75% of their losses (California Healthline, 12/2/14). ACOs in the new track also will be given a fixed set of beneficiaries for which they must provide care (Modern Healthcare, 6/4)….. CMS said that it expects the rule change will help ensure that 90% of MSSP ACOs stay with the program.”